Domestic agricultural value chain development and pro‐poor growth: A computable general equilibrium microsimulation application for the Democratic Republic of Congo

• Date: 01 February 2019
• Author: Christian S. Otchia
• DOI: http://doi.org/10.1111/rode.12557
• Published date: 01 February 2019

REGULAR ARTICLE

Domestic agricultural value chain development and

pro‐poor growth: A computable general

equilibrium microsimulation application for the

Democratic Republic of Congo

Christian S. Otchia

School of International Studies, Kwansei

Gakuin University, Nishinomiya, Japan

Correspondence

Christian S. Otchia, School of

International Studies, Kwansei Gakuin

University, Uegahara, Nishinomiya,

Hyogo, Japan 662-8501.

Email: otchia@kwansei.ac.jp

Funding information

This research was supported by Japan

Society for the Promotion of Science

Class-A Grants-in-Aid for Scientific

Research No. 15H02620 and Grant-in-Aid

for Early-Career Scientists No.

18K18266. We also acknowledge the

Thomas Rutherford Scholarship provided

by the GAMS Development Corporation

and the Center for Global Trade Analysis,

Purdue University for generous financial

support.

Abstract

The economy of the Democratic Republic of Congo has

gained momentum between 2003 and 2015, with a high

annual growth rate of over 6%. However, poverty and

employment outcomes were relatively poor, while inequality

increased. This study uses a computable general equilibrium

(CGE) microsimulation model to study the pro‐poor effect

of alternative growth strategy that is likely to strengthen the

competitiveness of agro‐food products from the Congo. We

experimented with three differentscenarios: labor productiv-

ity growth, marketing efficiency, and transportation

efficiency. The simulations demonstrated that improving the

productivity of workers in agro‐food industries has not only

produced strong relative pro‐poor effects, but also has the

potential to lead to income convergence between rich and

poor households. The analysis also revealed the underesti-

mated contribution of agro‐food marketing and transporta-

tion efficiency. The major finding is that marketing

efficiency favors the middle class. Efficiency gains in the

transportation of agro‐food products generate strong pro‐

poor effects in absolute and relative terms and are likely to

be particularly effective in leading to income convergence.

This policy has the potential not only to increase income

and employment, but also to provide positive price impacts

for both producers and consumers and benefits to all house-

holds, particularly low‐income households.

DOI: 10.1111/rode.12557

Rev Dev Econ. 2019;23:475–500. wileyonlinelibrary.com/journal/rode © 2018 John Wiley & Sons Ltd

|

475

1

|

INTRODUCTION

The Democratic Republic of Congo (DRC) is a major producer and exporter of minerals, with cop-

per and cobalt representing the primary sources of export earnings. The country is responsible for

about 3% of the world's copper production and nearly 50% of its cobalt production. Copper pro-

duction is estimated to have increased from 98,500 tons in 2006 to 1.06 million tons in 2014, and

cobalt production rose to 75,560 tons in 2014 from 15,384 tons in 2006 (Banque Centrale du

Congo, 2016). In addition to copper and cobalt, the DRC exports other minerals such as tantalite

(17% of world production), diamonds (12% of world production), and tin (1% of world produc-

tion). Similar to many resource‐based economies, the DRC's exports remain focused on a very lim-

ited number of products and are handicapped by low value‐added, low revenue collection, and

nonrepatriation of capital. In 2012, for example, 92% of exports were concentrated in only three

products—copper, crude oil, and cobalt—while five products accounted for almost 90% of exports

in the 2000s (Otchia, 2014).

Between 2003 and 2015, the Congolese economy has gained momentum, with high growth

rates and significant foreign direct investment (FDI) inflow. As commodity prices increased and

FDI poured into the country, the DRC achieved the fastest expansion since its independence in

1960. The growth rate has been maintained at an average of 6% between 2003 and 2015, while

the stock of inward FDI has increased threefold compared with 2000 levels (Otchia, 2015). How-

ever, such strong growth has left the poor behind. The income share of the bottom 20% of the

population regressed between 2005 and 2012, while inequality increased (Programme des Nations

Unies pour le développement en République démocratique du Congo [PNUD‐RDC], 2015). Pov-

erty and welfare outcomes were also relatively poor. According to the DRC's Institut National de

la Statistique (INS, 2014), the incidence of subjective poverty is 73%, and almost half of the

DRC's households perceive themselves to be in worse economic condition. In addition, 55.62% of

households believe that their living standard has decreased, 42.98% have seen their purchasing

power decrease, 48.83% cannot feed themselves, and 74.14% are unable to build savings. This

weak translation of growth into poverty reduction and better living standards raises the level of

urgency with which development policy should be treated, as the commodity boom cannot last for-

ever. How can the DRC translate this unprecedented growth into better employment and higher

living standards? What are the key policies that will facilitate this transformation?

This study strives to shed light on these questions using a top‐down, bottom‐up computable

general equilibrium (CGE) microsimulation model for the DRC. While of unquestionable interest

in many resource‐rich countries, these questions have also received considerable critical attention

because of the slow progress seen in improving people's lives around the world (World Bank,

2016). In this vein, increasingly, many African countries are renewing their interest in the develop-

ment of agribusiness and agricultural value chains in light of the contribution of agriculture to food

and nutrition security, poverty reduction, employment, household incomes, and economic growth.

Agriculture is also an important sector of the DRC's economy. However, while its share of total

employment is high, at 71%, its contribution to GDP is much lower, at 20%. Agriculture also uses

only 11% of the total arable land, with a rudimentary technology mostly based on outdated produc-

tion methods. Because of this untapped potential, agriculture has become instrumental to the

growth and development of the DRC. To materialize the recognition of this critical role that agri-

cultural‐led development plays in the economic diversification process, the DRC government

adopted a National Strategic Plan for Development (PNSD) in 2016. The objective of the PNSD is

to help the DRC reach a high‐income status by 2050. The strategy is articulated in the following

three roadmaps: (1) reach middle‐income status by 2021 through agricultural transformation, (2)

476

|

OTCHIA